Summary of Significant Accounting Policies

3 Months Ended

Jan. 31, 2013

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 3. Summary of Significant Accounting Policies

Inventory:During the second quarter of fiscal 2013, the Company completed a detailed analysis of its inventory and recorded a reserve for excess inventory of approximately $1,629,000. In its continuous effort to manage its inventory, the Company had previously conducted an inventory analysis of obsolete inventory and recorded a provision for same in the third quarter of fiscal 2012. To reduce inventory to a lower of cost or market value, a reserve is recorded for slow-moving and obsolete inventory based on historical experience and monitoring current inventory activity. Estimates are used to determine the necessity of recording these reserves based on periodic detailed analysis using both quantitative and qualitative factors. As part of this analysis, the Company considers several factors including the inventories length of time on hand, historical sales, product life cycle and product obsolescence. The reserve was necessary to reflect not only the Company's changing base ophthalmic business but also to reflect the appropriate level and mix identified in accordance with the Company's lean methodology with respect to its inventory.

Deferred revenue: During the second quarter of fiscal 2011, the Company received a payment from Codman & Shurtleff, Inc. ("Codman"), a marketing partner, to establish exclusivity on certain electrosurgical generator products and accessories. Revenue from the payment was deferred and is being amortized over the expected term of the agreement. The Company recognized $131,000 and $266,000 of this deferred revenue for the three and six months ended January 31, 2012, respectively. In addition, included in deferred revenue is an amount the Company received pursuant to a Confidential Settlement and License Agreement with Alcon, Inc. ("Alcon"). This payment is accounted for as an up-front licensing fee. Recognition of the revenue pursuant to this agreement has been deferred and was being recognized over a period of up to 15 years based upon estimated shipments to Alcon under a related Supply Agreement executed pursuant to the settlement. On February 13, 2012, Alcon informed the Company that it had decided to cancel the project, orders and forecasts covering the two products to have been supplied under the Supply Agreement. However, the Supply Agreement remains in effect and the Company has continuing performance obligations associated with the Supply Agreement. Therefore, the Company plans on recognizing the remaining deferred revenue associated with the Supply Agreement ratably over the next 14 years which is the remaining life of the patents and associated Supply Agreement.The Company recognized $322,000 and $644,000, and $322,000 and $585,000 of this deferred revenue for the three and six months ended January 31, 2013 and 2012, respectively.

The Company's significant accounting policies are disclosed in the Annual Report. In the first six months of fiscal 2013, no additional significant accounting policies were changed.